Boeing Slumps as War, Inflation Outweigh Dreamliner Progress

The aviation titan recorded negative $3.57 billion adjusted free cash flow in the first quarter and racked up about $1 billion in new accounting charges for its defense division

A Boeing 787 composite forward fuselage section sits on the factory floor at Spirit AeroSystems in Wichita, Kansas.
April 27, 2022 | 09:00 AM

Bloomberg — Boeing Co.’s (BA) shares fell after it burned more cash than Wall Street had expected to start the year, underscoring the strain on the company as it moves closer to resuming 787 Dreamliner deliveries.

The aviation titan recorded negative $3.57 billion adjusted free cash flow in the first quarter and racked up about $1 billion in new accounting charges for its defense division, according to a statement Wednesday. Boeing is also pausing production of its 777X jetliner through 2023 and postponing the initial delivery of the hulking twin-engine aircraft to 2025.

The results highlight the magnitude of issues facing the planemaker, stretching beyond the 787 delays to include the impact of war, inflation and tougher regulatory scrutiny in the wake of two fatal 737 Max crashes.

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“The first quarter presented new challenges for our world, our industry and our business,” Chief Executive Officer Dave Calhoun said in a memo to employees. “Despite the current environment, we continue to make important progress toward our key commitments.”

The shares slumped 3.6% as of 8:34 a.m. before regular trading in New York. Investors had been bracing for a poor quarterly showing, sending Boeing shares to a 52-week low Tuesday after General Electric Co. and Raytheon Technologies Corp. warned of supplier strains and spiking costs for raw materials.

Calhoun remains optimistic that the company will generate cash on an annual basis this year for the first time since 2018.

He also said Boeing has filed a certification plan with U.S. authorities for the Dreamliner and completed the required work to address tiny structural flaws in an initial batch of the carbon-fiber jets. Test flights have begun, he added without specifying what other tasks remain or when Dreamliner handovers will resume.

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Defense Pressure

Boeing is also facing pressure in its defense and space division, whose longtime CEO, Leanne Caret, stepped down at the end March. Inflation and Covid-19 accelerated the company’s losses on two fixed-price contracts: retrofitting 747 jumbos for the next Air Force One fleet and developing a T-7A jet to train U.S. Air Force pilots.

The accounting charge shows the risks that high inflation poses to Boeing’s strategy last decade of counting on its once-robust commercial business to help it aggressively underbid competitors for defense franchises. The company wrote off $691 million weeks after winning contracts for the U.S. Air Force trainer and a Navy refueling drone in 2018.

Boeing’s first-quarter sales of $13.99 billion and core loss of $2.75 a share both missed the average of analysts’ estimates compiled by Bloomberg.

“This was another dreadful quarter from Boeing,” Robert Stallard, an analyst with Vertical Research Partners, said in a note. “And what we think will really worry investors is that we keep getting more bad news.”